BPInsights: February 14, 2026

How the LCR Could Support More Liquidity, More Lending

The liquidity coverage ratio requires banks to hold enough liquid assets to withstand a run, but introduces distortions that undermine its intended purpose, a new BPI note explains.

• The LCR requires banks to maintain a buffer of liquid assets to satisfy outflows, but this buffer must be maintained constantly - effectively precluding banks from using it for its intended purpose. Recognizing that the LCR is an unusable buffer, banks must build an additional, usable liquidity buffer on top of the assets needed to satisfy the LCR. Requiring banks to hoard excess liquidity acts as a tax that reduces credit provision to the real economy. This tax is actually higher for banks with safer liabilities, which contradicts the spirit of the LCR.
• To meet LCR requirements, banks may be forced to fire-sell illiquid assets in a stress event - exacerbating the kind of problem that liquidity regulations seek to prevent.
• Banks with more stable liabilities may have to fire-sell more illiquid assets. The same LCR that was meant to make banks self-sufficient and not reliant on central bank interventions ends up increasing the likelihood of central bank interventions.

2 Proposed Adjustments. The note outlines changes that would promote liquidity and mitigate the LCR's unintended consequences.

• An adjustment to the minimum LCR requirement that would allow banks to use the stored liquidity while still satisfying the LCR.
• Destigmatizing the discount window to eliminate the distortions imposed by the LCR.

Five Key Things

1. Public-Interest Groups Call on Meta to Stop Scam Ads

This week, the National Consumers League and 13 other public interest groups urged Meta to institute new policies to fight the scourge of scam ads on its platforms. Meta, which operates Facebook, WhatsApp and Instagram, projected that 10 percent of its 2024 revenue would come from ads for scams and banned goods, according to a Reuters investigative report. "Meta is uniquely positioned to stop a massive amount of fraud before it even happens. We believe it has a responsibility to do so," said John Breyault, National Consumers League Vice President of Public Policy, Telecommunications and Fraud. The groups called on Meta to establish a victim restitution program, strengthen its oversight of advertisers and increase transparency into its handling of suspected scam ads. "Given Meta's enormous size and the scale of its platforms, it is one of the entities in the fraud ecosystem best positioned to combat these crimes," wrote the groups.

Class-Action Lawsuit. Separately, a recent proposed class-action lawsuit in California federal court accused Meta of knowingly allowing "pump-and-dump" scammers to advertise on its platform. Such scammers promote and falsely inflate the prices of certain stocks before selling their shares. Three Meta users filed a complaint alleging that Meta was aware of such scams on its platform but refused to implement policies to prevent the fake ads.

2. House Introduces SCAM Act to Tackle Malvertising and Bank Impersonation Scams

Representatives Dan Meuser (R-PA) and Lou Correa (D-CA) introduced bipartisan legislation this week titled "Safeguarding Consumers from Advertising Misconduct Act" (SCAM Act), aimed at tackling malvertising and bank impersonation scams.

Erik Rust, BPI Senior Vice President & Head of Government Affairs, issued a statement of support:

"The SCAM Act is a bicameral, bipartisan legislative solution that everyone should support. Americans are shouldering higher costs and hardships due to the proliferation of fraud and scams, as nearly 3 in 4 U.S. adults have experienced some form of online scam or attack, many of which occur over social media and messaging platforms. We're grateful for Representatives Meuser and Correa's leadership in addressing this national crisis."

Senators Bernie Moreno (R-OH) and Ruben Gallego (D-AZ) introduced a Senate version of the legislation last week.

3. Banking Agencies Rescind LCR FAQs

The Federal Reserve, OCC and FDIC this week rescinded their public Frequently Asked Questions on the liquidity coverage ratio. The agencies said they "anticipate seeking comment on the issues addressed in the FAQs, as well as on proposed regulatory changes, in the future." This announcement signals a welcome move toward greater regulatory transparency because the issues addressed in the FAQs had previously not been subject to notice and comment. While the FAQs (issued in October 2017) have been rescinded, they will remain on the agencies' websites to permit banks that previously relied on them to continue to confirm or clarify LCR requirements.

4. Fed to Review Previously Issued MRAs

The Federal Reserve will review Matters Requiring Attention that examiners have issued to banks in order to ensure they align with the Fed's new supervision focus on material risk, according to Bloomberg this week. MRAs are supervisory directives flagging issues for banks to fix; they could have significant implications for a bank's examination ratings. The banking agencies are currently working to refocus such directives on material risk, rather than process issues. According to Bloomberg, citing a Fed memo, the review of MRAs will evaluate whether such flags are "based on deficiencies which, if not remediated in a timely manner, would create a significant probability of higher-than-normal harm to the financial condition of the supervised firm," rather than concerns about policies, procedures or controls. The MRAs should be issued in "plain language and [with] sufficient specificity." In January, the FDIC established a new unit of supervisory appeals to serve as the "final level of review of material supervisory determinations," Bloomberg noted.

5. The Crypto Ledger

Here's the latest in crypto.

SBF Seeks New Trial. Jailed FTX co-founder Sam Bankman-Fried is seeking a new trial, asserting that the case against him was based partly on false or misleading testimony. Bankman-Fried, who was found guilty on seven counts of fraud and conspiracy in 2023, is currently serving a 25-year prison sentence in California.

Operational Risk, Crypto Edition. South Korean crypto exchange Bithumb accidentally gave out more than $40 billion in bitcoin in a botched prize giveaway, according to the Wall Street Journal this week. Local regulators have opened a probe into the exchange in the wake of the incident. The firm has offered to cover losses to anyone who sold their bitcoin, has dropped trading fees this week for all assets and has pledged to establish a permanent Customer Protection Fund to protect users. Bithumb's CEO cited a "deficiency in internal system control."

In Case You Missed It

Traversing the Pond

Here's the latest in international banking policy.

• EU Evaluates Bank Competitiveness. The European Commission has launched a targeted consultation on the competitiveness of the EU banking sector. It examines three main areas: the competitiveness of EU banks at both EU and global level, the single market and the banking union and the complexity and effectiveness of the regulatory framework. The consultation seeks comment on 97 questions on digitalization, cross-border activities within the EU banking sector, market consolidation, the macroprudential framework and corporate governance, among other topics. Relatedly, the Commission has launched a call for evidence (CfE) to inform its forthcoming Communication on competitiveness in the Single Banking Market, scheduled for the third quarter of 2026. The Commission is seeking feedback to identify the challenges affecting competitiveness in the banking sector, assess their impact on the EU economy and explore ways to address these barriers. It also aims to evaluate whether the current prudential, supervisory and crisis-management frameworks remain appropriate or require adjustments.
• EU Leaders' Retreat Puts Economic Agenda in Spotlight. The EU Leaders' Retreat took place this week. EU officials gathered to discuss strategic approaches and priorities for their economic agenda amid recent geopolitical pressures and competitiveness concerns. In a Financial Times interview ahead of the meeting, European Council President António Costa called for a "big bang" on EU regulation, emphasizing the need for cross-border efficiency. ECB President Christine Lagarde highlighted five of her key priorities, including establishing a savings and investment ⁠union, making the digital euro a reality, deepening the single market, fostering innovation and strengthening the bloc's core institutional framework.
• ECB's Schnabel: Europe Needs Unified Framework. European Central Bank executive board member Isabel Schnabel called for the creation of a unified European corporate framework to enable economic activity to flow more freely across borders and to prevent stagnation. "[I]t would provide what Europe has long been missing: a truly single market that allows Europe to compete as one economy rather than 27," Schnabel said in a Financial Times op-ed this week.

• EC to Seek Input on Deposit Guarantees. The European Commission will seek comment in the coming weeks on how to create a unified framework to guarantee bank deposits of up to €100,000 across the EU, according to the Financial Times this week. The consultation will mark the initial step in the Commission's plan to examine the competitiveness of the EU banking sector.

• Digital Euro Plan Advances. The digital euro moved closer to reality as the European Parliament this week agreed to endorse the European Council's proposal for a central bank digital currency with both online and offline functionality. The endorsement is significant because the European Central Bank needs Parliament's legislative approval before it can issue a digital euro.
• EBA Paper on Simplification of Credit Risk Framework. The EBA has also published a discussion paper this week on the simplification of the credit risk framework as part of the simplification agenda.

Illinois Interchange Fee Law Largely Upheld by Judge

A federal judge in Illinois this week upheld most of an Illinois law banning interchange fees on tax and tip payments, enabling the law to go into effect this year. U.S. District Judge Virginia Kendall ruled that Illinois may enforce its interchange ban against national banks and other financial institutions, despite previously granting a preliminary injunction to the parties, which signaled they were likely to prevail on their preemption claims. The decision - which the judge called "a close case" - focused in large part on the role of payments network operators: "If the IFPA directly interfered with fees the banks directly charged, this would be a far simpler case," Judge Kendall said in the opinion, referring to the Illinois state law by name. At the same time, the decision blocked another provision of the law that would have significantly restricted banks' uses of transaction data. The court found this aspect of the law was preempted and therefore does not apply to either national banks or banks chartered in other states outside of Illinois.

• Broader Context. The main legal question in this case relates to national bank preemption - the principle that state laws interfering with nationally chartered banks' ability to do business are preempted by federal law. The decision is the latest example of a federal judge applying the analysis required in the Supreme Court's 2024 decision in the Cantero case. Other examples include a series of prominent cases regarding state interest-on-escrow requirements. These state interest-on-escrow laws were also the subject of a recent OCC proposal that would back preemption of those laws. The Illinois law also comes amid years-long debates between card issuers and retailers over limits on interchange fees.
• Bottom Line. There is "no doubt" that the Illinois law presents "complicated compliance challenges," Kendall wrote in her decision, and it is not clear whether card networks can adapt to the state law in time for compliance. But "that is not the question in front of this Court," the judge said. The plaintiffs have indicated they plan to appeal the decision.

Erebor Obtains Bank Charter

Tech-focused lender Erebor late last week became the first newly chartered bank approved by the OCC in this administration. The bank previously received preliminary conditional approval for a national bank charter from the OCC, and has now obtained the full national bank charter.

Things to Watch Next Week

• Comments on the Federal Reserve's proposals on stress test models and scenarios are due on Saturday, Feb. 21.
• The Exchequer Club hosts an event with Vice Chair for Supervision Michelle Bowman on Wednesday, Feb. 18.
• Columbia University and BPI co-host their annual conference on bank regulation research on Friday, Feb. 20.

BPI Job Bank

• AVP, Graphic Designer
• AVP, Research Analyst

Member News

Fifth Third's Ben Hoffman on Fraud and Scams, Regulation, M&A

Ben Hoffman, Fifth Third Bank Chief Strategy Officer and Head of Consumer Products, discussed the bank's recent acquisition of Comerica, fraud and scams, regulatory uncertainty, AI in banking and other topics on a recent episode of the Banking with Interest podcast. Check out the interview here.

Upcoming Events

• 2/18/2026: Exchequer Club Meeting with Federal Reserve Vice Chair for Supervision Michelle Bowman

• 2/20/2026: Columbia/BPI Annual Bank Regulation Research Conference: Announcement and Call for Papers